When do Charity Trustees have Power to dispose of Charity Land?
It is useful for trustees of land holding charities to be aware of when they have power to dispose of the charity's land. Unexpected complications and delays can arise if specific issues have not been considered in advance of the completion date.
The charity's trustees must consider:
- Whether they have power to dispose of the land taking into account the provisions in the charity's governing document and their statutory powers;
- The Charities Act 2011 which requires charity trustees to follow specific procedures before disposing of charity land, and which differ depending upon the type of disposal; and
- Whether the land is subject to any special trusts or is permanent endowment.
Type of charity
The trustees' power to dispose of charity land will depend upon the type of charity and the structure through which it operates.
Charitable companies should check their Articles of Association to ascertain the extent of the trustees' powers to dispose of the charity's land. It is common for express powers of disposal to be included in up to date Articles.
Charitable trusts or unincorporated associations may also include similar provisions in a well-drafted and up to date trust deed or constitution. In circumstances where an express power is absent, then trustees may use a statutory power pursuant to the Trusts of Land and Appointment of Trustees Act 1996 which confers on trustees of land all the powers of an absolute owner including of disposal.
Charities incorporated organisations (CIOs) which use a Charity Commission's Model Constitution should also have clear powers of disposal.
If in any doubt, charity trustees should seek advice on the interpretation of these provisions particularly if they are subject to any caveats or restrictions and to ascertain whether the land itself is subject to any special trusts or is permanent endowment.
Land that is permanent endowment cannot generally be disposed of without The Charity Commission's prior written consent. The statutory regime differs depending upon the circumstances and the size and structure of the charity.
Professional advice should be obtained at an early stage if charity trustees are considering disposing of permanent endowment -
Obtaining consent can be a lengthy process and can delay transactions if the correct procedures are not followed.
"Designated land" describes charity land that is required by the trusts upon which it is held to be used for the charity's purposes. An example is a gift of land for use as a Village Hall or a gift of land that must be used as a public recreational ground.
The Charity Commission's view is that if charity trustees wish to sell designated land and do not intend to, or cannot replace it, The Charity Commission's consent will be required.
For further information please see The Charity Commission's Guidance: Sales, Leases, Transfers or Mortgages: what trustees need to know about disposing of charity land (CC28).
Charity trustees who know or suspect that their charity's land is designated land should seek professional advice and if required, obtain The Charity Commission's consent before committing to dispose of it.
The Charities Act 2011
Charity trustees must also consider the procedures in The Charities Act 2011 when disposing of charity land.
Any disposal of charity land to a connected party requires The Charity Commission's prior written consent.
The definition of connected parties is very wide and includes:
- Spouses or civil partners of trustees or parties connected to trustees;
- Relatives of trustees - siblings, parents, grandchildren, grandparents;
- Officers, agents or employees of the charity;
- Business partners of trustees;
- Donors of land to the charity and their spouses, civil partners or close relatives;
- Organisations controlled by trustees or parties connected to trustees or in which they have a substantial interest
The procedure to obtain Charity Commission consent can be time-consuming and there is no formal process to expedite applications if transactions are urgent.
The 'connected party' issue should also be considered at an early part of the process and some connected parties can easily be overlooked (e.g. donors of land to the charity).
For disposals to non-connected parties the statutory procedures require the charity trustees to obtain and consider a written report on the proposed transaction from a qualified surveyor acting exclusively for the charity and complying with the Charities (Qualified Surveyors' Reports) Regulations 1992 prior to entering into the transaction.
This is to enable the charity trustees to ascertain whether the terms of the transaction are the best that can be reasonably obtained for the charity.
Leases of Less than 7 Years
For leases of less than 7 years there is a simpler process which states that advice must be taken from a person "…who is reasonably believed by the trustees to have the requisite ability and practical experience to provide them with competent advice". This advice should review the terms of the proposed lease and advise the trustees whether these are the best that may be reasonably be obtained by the charity.
Timing of Consideration of Advice
The charity trustees are required to consider the advice prior to entering into the transaction and therefore timing should also be built into transactions to not only obtain the requisite advice and ensure that it is in a format that complies with the Act, but to circulate it to the trustees and enable the trustees to consider it and make a decision on the disposal. This will require a trustees' meeting to be convened or (if there is power in the charity's governing document) a written resolution.
The decision-making process should be clearly minuted as evidence that the trustees complied with the statutory procedures.
Public Notice of disposal of Designated Land
Designated land may also require the charity trustees to give public notice of its disposal. This is at least one month before a disposal giving notice of the charity trustees' intention to sell, and allowing interested parties to make representations.
Again, this can have an impact upon timing for transactions and should therefore be considered at an early stage.
Mortgages of Charity Land
There are statutory procedures pursuant to the Charities Act 2011 that govern charity trustees mortgaging charity land as security for borrowing or grants. We will not go into detail about these procedures here, but these should be considered at an early stage to avoid unexpected delays or complications.
For further information please contact Gerry Morrison at firstname.lastname@example.org
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.